Economists say the long-term trends are more important that the incremental updates of labor productivity numbers, out from the Bureau of Labor Statistics Wednesday. The productivity rate isn’t about how hard people work, but how much output they generate, and how much technology and living standards improve that output.
Chad Syverson, an economist at the University of Chicago Booth School of Business, calls the productivity rate one of the most important measures of the economy.
“Because,” said Syverson, “in the long run all economic growth is tied to productivity growth. Period.” Syverson said it’s one of the measures closely observed by the Federal Reserve and other economists.
“It’s a gauge of sort of the long-run growth rate of the economy,” he said. “It tells you a lot about the relationship between how fast economic growth can be before inflation sets in.”
Patrick Newport of research firm IHS said productivity rates also gives an indication of how quickly life will improve, and lately, they’ve been running pretty low at just 0.5 percent for the last few years as opposed to 2.1 percent in general since the 1940s.
“And the reason those numbers matter,” he said, “is because if it runs at 0.5 percent, living standards double every 144 years, if it runs at 2.1 percent, it’s normal rate, living standards double every 35 years.”
In other words, those humble productivity numbers can tell us whether living standards will jump for our kids, or our great, great, great, great grandkids.
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